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What Contributed to the Rise in Japanese Inflation in December?

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Inflation rose 0.2% in December

With a rise in food prices by 2.4% in December 2015, the Japanese consumer price index rose 0.2% year-over-year (or YoY) in December as compared to a rise of 0.3% in November. The consumer prices fell 0.1% month-over-month after a 0.3% fall in November.

With inflation staying low, the WisdomTree Japan Hedged Equity ETF (DXJ) and the iShares MSCI Japan (EWJ) fell 10.2% and 8.8%, respectively, from the prior month as of January 28, 2016. Also, Toyota Motor (TM), Mitsubishi UFJ Financial Group (MTU), and SoftBank Group (SFTBY) fell 6.9%, 17.7%, and 15.9%, respectively, over the same period.

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The fall in fuel, light, and water charges kept inflation low

Other than food prices, an annual rise in inflation could also have led to a rise in the prices of culture and recreation by 2.2%, furniture and household utensils by 2.3%, clothes and footwear by 1.8%, and education by 1.5%. Additionally, the fall in fuel, light, and water charges by 6.6%, as well as the fall of 2.8% for transportation and communication, over the past year contributed toward keeping inflation low.

The inflation stayed lower in December 2015 with a fall in energy prices. However, the core inflation that excludes volatile basket, such as fresh food, rose to 0.1% YoY. Also, the core-core inflation rate that includes all items aside from food and energy rose 0.8% on an annual basis. This is compared to a rise of 0.9% in November 2015.

The target inflation rate set by the B0J (Bank of Japan) stands at 2.0%. However, the December inflation is much lower than the target inflation rate. To boost economic growth and help the economy overcome deflation, the BoJ—at its January 2016 meeting—kept its pledge to increase the monetary base at an annual pace of about 80 trillion yen. It has also adopted a negative interest rate of -0.1% from a previous level of 0.1%, aiming to achieve price stability. However, it needs to be seen how these policy measures help Japan come out of prolonged deflation.

While inflation is staying low in the Japan, let’s take a look at Japanese household spending in the next article.

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